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Why April's hiring slowdown may show caution on US economy

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WASHINGTON >> American employers signaled their caution about a sluggish economy by slowing their pace of hiring in April after months of robust job growth.

At the same time, companies raised pay, and their employees worked more hours — a combination that lifted income and, if sustained, could quicken the U.S. expansion.

As a whole, the government’s report Friday pointed to an American job market that continues to generate steady hiring, though at a rate that may be starting to slow. Employers added 160,000 jobs in April, well below the average gain of 243,000 in the prior six months. But the unemployment rate remained a low 5 percent, roughly where it’s been since last fall.

“Employment was never going to continue rising at more than 200,000 a month indefinitely,” said Paul Ashworth, an economist at Capital Economics, a consulting firm. “Those monthly gains are simply unsustainable” at a time of tepid economic growth.

Over the past six months, the economy has expanded at an annual pace of just 1 percent. Anecdotal evidence suggests that some employers have become concerned that sluggish growth could weaken customer demand and limit the need for more employees.

Still, most economists said they were not worried about the weaker hiring in April. In large part, it reflected declines in retail and construction hiring, an expected pullback after hiring in those areas surged in the first quarter of 2016.

And job gains have slipped before — most recently in January — without signaling any persistent slump.

“The figures are a yellow light, not a red flag,” said Andrew Chamberlain, chief economist at Glassdoor, an employment website.

April’s hiring slowdown may also reflect a long-expected shift to a more sustainable pace of job creation. The job market has added 200,000-plus jobs a month for more than three years. That’s harder to achieve once unemployment falls to 5 percent, consistent with a nearly recovered economy.

“The good news is that more people were employed, they worked longer hours and got paid more for it,” said Robert Dye, chief economist at Comerica Bank.

The slowdown in economies in the United States and overseas has led to volatility in financial markets and complicated the Federal Reserve’s plans to gradually raise interest rates.

Many analysts had expected the Fed to raise the short-term rate it controls as early as June. But Friday’s figures may make that less likely. Market-based measures suggest that the Fed will raise rates just once this year. Its first hike in nine years occurred in December.

Jon Cooper, president of Spectronics, a maker of fluorescent dyes and ultraviolet equipment based in Westbury, New York, says weakness in China and Europe has posed problems for his business.

The company makes ultraviolet lights used in counterfeit detection and crime-scene investigations. Its dyes are used by automotive and industrial companies to detect leaks. Half of its sales are overseas.

“There’s certainly headwinds blowing at us as the global economy slows,” he said.

But the company still wants to hire more engineers, machinists and customer-service workers because newer products are offsetting losses overseas.

Most of the economy’s new jobs require higher education or skilled training. In April, workers without college degrees suffered job losses.

The unemployment rate for college graduates is now just 2.4 percent, less than half the national average. Employers have hired 2.3 million college graduates in the past 12 months while letting go of 425,000 workers with a high school diploma or less.

Despite last month’s pullback, hiring at April’s pace should over time be enough to keep up with population growth and lower the unemployment rate, economists said.

It should also help heal some underlying scars from the Great Recession in part by encouraging people who had stopped looking for work to resume their job hunts, Chamberlain said.

For four straight months, strong hiring increased the proportion of adults who either had a job or were looking for one. That was an encouraging sign because it meant Americans were more optimistic about their prospects. But that figure dipped to 62.8 percent last month from 63 percent in March.

Higher-paying industries led the way in job growth in April. Professional and business services, which includes engineers, accountants and management consultants, added 65,000 jobs. Financial services added 20,000.

That helped boost incomes: Average hourly pay rose 2.5 percent in April from a year earlier, above the sluggish 2 percent annual pace that has been typical for the past six years.

Iric Wexler, an executive at The Cleaning Authority in Columbia, Maryland, said lower unemployment has forced his company to raise pay to attract and keep workers. So far, the company has managed to raise prices to offset the costs.

In the meantime, the U.S. job market is outperforming most of its counterparts overseas. The overall unemployment rate in the 19 European nations that share the euro currency, for example, is 10.3 percent.

Japan’s economy contracted in the final quarter of last year, though its jobless rate is also below that of the United States. China’s growth slowed last year, but has shown signs of leveling off in 2016.